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US real estate market largely in expansion phase amid economic growth

The U.S. commercial real estate industry across most property types is in the growth phase of the market cycle, as the country continues to see economic progress, according to Black Creek Research's latest Real Estate Market Cycle Report.

Based on an analysis of occupancy movements across five property types, the retail, office, industrial and hotel segments are all largely in the growth phase of the cycle, while most markets in the apartment sector are in the hypersupply phase, wherein supply growth is greater than demand growth.

Of the 54 U.S. metropolitan statistical areas, 51 retail, 49 office and 36 hotel markets are experiencing growth. The industrial sector is largely hitting equilibrium, with 51 of the 54 MSAs experiencing similar growth rates in supply and demand. The retail sector is also reaching equilibrium levels at 40 of the 54 MSAs. In the apartment sector, 22 MSAs are at equilibrium, while the rest are experiencing oversupply.

During the second quarter, office occupancy stayed flat sequentially but rose 0.2% year over year, while rents inched 0.3% higher for the quarter and 1.8% year over year, as a 4% rise in GDP growth spurred strong office-centered job growth.

In the retail sector, occupancy was up 0.04% sequentially in the second quarter and 0.2% year over year, while rents climbed 0.5% for the quarter and 1.6% year over year.

"Experiential-based retailers and e-commerce retailers are creating strong demand for retail space that is easily absorbing failed older retail formats. New retail construction also remains at less than half the historic growth rate, which helps keep markets in balance," the report said.

In the hotel segment, occupancy dropped 0.1% as the average room rate jumped 4.0% sequentially during the second quarter. Year over year, hotel occupancy and room rate rose 0.2% and 3.8%, respectively.

Industrial and apartment occupancy levels were essentially flat, both rising 0.1% sequentially during the second quarter, or 0.4% and 0.1%, respectively, year over year. Industrial and apartment rents jumped 1.3% and 1.6%, respectively, quarter over quarter, up 6.2% and 3.1% from year-ago levels.

While apartments were generally in oversupply during the second quarter, there was a slight slowdown in construction starts in many markets in May, which could bring the sector back into equilibrium by 2020 if this trend continues, according to the report.